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BMI View: Sri Lanka's pharmaceutical and healthcare markets will continue to expand over the next10years driven by economic development. Despite an increased level of fiscal tightening in the coming quarters, healthcare systemstrengtheningandfacilitiesupgrade will remain a policy priority. We expect growing demand for healthcare and medical treatment of chronic diseases to create commercial opportunities for drugmakers and medical operators, although the government'spro-generic drugs stance and lowspending per capita on medicinewill continue to tarnish the market potential appeal to innovative drugmakers.

Headline Expenditure Projections

Pharmaceuticals: LKR82.88bn (USD610mn) in 2015 to LKR90.57bn (USD610mn) in 2016; +9.3 in local currency terms and +0.4 in US dollar terms. Forecastbroadlyin line with last quarter.

Healthcare: LKR273.32bn (USD2.01bn) in 2015 to LKR293.79bn (USD1.99bn) in 2016; +7.5 in local currency terms and -1.2 in US dollar terms. Forecast revised downwards from last quarter.

Headline Pharmaceuticals & Healthcare Forecasts (Sri Lanka 2014-2020)

2014

2015

2016f

2017f

2018f

2019f

2020f

f = BMI forecast. Source: National sources, WHO, BMI

Pharmaceutical sales, USDbn

0.570

0.610

0.610

0.630

0.670

0.720

0.760

Pharmaceutical sales, % of GDP

0.73

0.74

0.73

0.70

0.66

0.62

0.58

Pharmaceutical sales, % of health expenditure

29.7

30.3

30.8

31.2

31.4

31.6

31.6

Health spending, USDbn

1.940

2.010

1.990

2.020

2.130

2.270

2.400

Risk/Reward Index

In Q416, Sri Lanka's Risk/Reward Index (RRI) score remains unchanged at 35.3 out of a total of 100, making it the third least attractive market to pharmaceutical investors out of 19 countries monitored in the Asia Pacific region. The main reason for the country's low score is the relatively small population size, which translates into modest business opportunities by regional standards, as well government efforts to encourage the use of generic drugs. On the upside, Sri Lanka observes relatively high sector value growth.

Latest Updates

In August 2016, FPS Pharma announced that FPS Pharma Asia Limited (FPS-PAL), a wholly owned Hong Kong subsidiary, received approval from Sri Lanka's Health Ministry to set a compounding facility in Sri Lanka. The company compounding products will be supplied through a distributor to the local market and countries that Sri Lanka has trade agreements with which include India.

As of July 2016, oncology medical bodies in Sri Lanka are refusing to use Herticaid, a Russian biosimilar version of Roche's Herceptin (trastuzumab), alleging that the drug approval in Sri Lanka early in 2016 did not comply with the standard security time-frame for biosimilars approval.

The biotechnology company Biocad, which manufactures Herticaid at its facility in Saint Petersburg, Russia, is planning to launch several other biosimilar monoclonal antibodies in Sri Lanka over the next few years.

Reflecting Sri Lanka's government efforts to improve the quality of healthcare, under the organisation of the country's Health Ministry, the Sri Lanka Lab & Expo convention will be held in Colombo over August 18-20, with participation of 150 internationally reputed pharmaceutical and medical companies from 10 countries.

As of July 2016, with support from Indian Prime Minister Narendra Modi, India presented a grant of USD7.6mn to Sri Lanka to uplift and improve medical facilities in the country, including the launch of 88 state-of-the-art free pre-hospital care ambulances.

BMI Economic View

We expect Sri Lanka's industrial sector growth to remain robust over the coming quarters on the back a more stable political and macroeconomic environment and a softening of the government's stance towards Chinese investment. Accordingly, we have revised our expectations for Sri Lanka's real GDP growth to come in at 5.2% in 2016, up from 4.8% previously, before accelerating to 5.4% in 2017. That said, we believe that the broader economy will continue to face multiple growth headwinds over the coming quarters amid more fiscal and monetary tightening measures.

BMI Political View

We believe that Sri Lanka's reforms to internal security legislation and judicial inquiries into war crimes will only proceed slowly due to divisions within the coalition government. At the same time, limited public engagement has allowed social frictions to persist between communities on opposing sides of the former conflict. Nevertheless, Sri Lanka's gradual progress in other aspects of reconciliation, such as demilitarising ex-conflict areas and searching for missing persons, will improve its ties with the West and expand access to foreign investments and development aid.

Key Benefits

Benchmark BMI's pharmaceutical and healthcare market forecasts for Sri Lanka, to test other views - a key input for successful budgeting and strategic business planning in the Sri Lankan pharmaceutical and healthcare market.

Target business opportunities and risks in the Sri Lankan pharmaceutical and healthcare sector through our reviews of latest industry trends, regulatory changes and major deals, projects and investments in Sri Lanka.

Assess the activities, strategy and market position of your competitors using our company profiles (including SWOTs, KPIs and latest activity) and competitive landscape tables.

Coverage

BMI Industry View

An at-a-glance perspective on the latest regulatory developments, key forecast indicators and major corporate developments, covering the prescription, OTC and generics markets. The pharmaceuticals and healthcare SWOT outlines strategic factors that affect the basic assumptions underpinning BMI’s forecast analysis, and taken together with BMI’s political, economic and business environment SWOTs, it gives a complete overview of market climate.

BMI Industry Forecast Scenario

Industry forecasts to end-2019 for all key indicators, supported by explicit assumptions, plus analysis of key downside risks to the main forecasts:

BMI’s Risk Reward Index provides investors (both national and multinational) looking for opportunities in the region with a clear country-comparative assessment of the market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide indices of highest to lowest appeal to investors, with each position explained.

Market Summary

A snapshot of key market characteristics, including total size of the pharmaceuticals and healthcare segments, growth drivers, leading therapeutic areas and the competitive landscape

Details of the industry regulatory framework and key legislation covering the licensing of new products/services, pricing and reimbursements, intellectual property, taxation and advertising, as well as analysis of the overall regulatory burden.

Competitive Landscape

The competitive landscape section provides comparative company analyses and index by USD sales and % share of total sales – for the total pharmaceutical sector, as well as the OTC, generics and distribution sub-sectors.

Company Profiles*

Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate Company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.

*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.